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CoRecursive: Coding Stories
Story: From Code to Capital - Tim Chen's Journey from Engineer to VC
00:46:48
What if your corporate job left you feeling empty, and you decided to leap into venture capital? Tim Chen, a software engineer, was disillusioned with corporate life at Microsoft. The 2008 market crash and layoffs deepened his dissatisfaction....
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- [00:01]
Adam Gordon Bell
Hey, this is co recursive and I'm Adam Gordon Bell. Usually each episode is the story of a piece of software being built. Today, something different. Our guest is a software engineer, but it's about his journey. Stepping away from coding, trying his hand at venture capitalism, trying his hand at being an investor. You know, imagine this. You've spent years honing your skills as an Engineer and it's 2016 and you're at the forefront of the hottest of the hot areas. Cloud infrastructure, cloud, native computing. And then you decide to switch gears. You want to get a job at a vc, you want to do investing, but you're just met with some subtle jabs about not really fitting in.
- [00:55]
Tim Chen
Well, Tim, you look like a, a coding bro. Like implying I don't look professional like a VC supposed to be, you know, and I still remember those, those comments from folks. I was like, wow, there are funds after you actually have dress code. It's not very obvious dress codes, but there are dress codes, or not even dress codes, but even like particular way they want you to talk. And that's why actually, that's actually I feel like there's like 30, 40% why I don't get any job in VC is I don't talk like the MBAs of the world. You know that they're, they're used to, right? I'm, I, I still too much feel like an engineer, ish guy. So I, I do think that's one of the big reason why more people should be VCs. Fundamentally different GPs will end up being different people and make different decisions. And that excludes certain people already, subconsciously or consciously.
- [01:50]
Adam Gordon Bell
That's Tim Chen. You've probably used projects he's worked on Kafka, Kubernetes, Spark, various Apache projects. But today we're exploring why he wanted to jump into VC and why the VC world wasn't exactly welcoming to him. Today's episode is about seeing venture capital, seeing it through the eyes of someone who doesn't fit the usual mold. Why would someone like Tim, with a really solid career want to jump into investing? Why leave coding behind for something that, as his friends asked him, like, feels a bit like banking? And it all starts when Tim, who is living in Seattle, landed an internship at Microsoft.
- [02:37]
Tim Chen
I was there when back in about 07 to 2010, that was still the time where Microsoft still feels like it's the biggest company ever. Microsoft people feel like they're like gods, basically, like everything we deliver is much better. Linux is just a joke, right? Whatever we do is always the top of the world, right? So it's really weird. If you work at Microsoft at that time, you will find a bunch of employees working there for 20 years and they'll just tell you how. Not just like how great it is to be there, just how better Microsoft everything is than anything else. Like they don't even look at it. There was Hadoop, there's no SQL back in the day. Like none of them people even care. Oh, we have Microsoft SQL Server. It would just do everything. You know, we got everything and we do everything. Like the feeling like a superior to anybody, that was the mindset.
- [03:25]
Adam Gordon Bell
Unfortunately things were changing for Microsoft. The 2008 market crash had shook everything up.
- [03:30]
Tim Chen
I remember it was like 20,000 people got laid off or something like that. And a bunch of my teammates just got let go. And it's big companies letting go people. It's like a box next to your cube in the morning. Like you have no pre notice, you don't know you're leaving. You thought you're going to retire at Microsoft and then you just have boxes next to it and you have somebody watching you pack it up and watching you leave the building in a couple hours. In almost like a 25 years history company. Like if you work for so long, your identity is completely wrapped up, one day you just like get out of there.
- [04:06]
Adam Gordon Bell
Tim himself wasn't let go, but he struggled with his role which was building internally facing web apps.
- [04:12]
Tim Chen
It was really boring. So my day job was so boring that I have to just find stuff I can code because the job, even as a software development SD1 in a Microsoft job, you barely code actually you write a bunch of XMLs, you do some C sharp here and there, but it's very, it's quite dry. So I think these open source projects, yeah I was able to kind of jump here and there, just learn a bunch of things. Really helped me to, to work on interesting stuff that keep me feel like I can actually do more because my day job is just like fix asp.net website. That's quite boring.
- [04:54]
Adam Gordon Bell
And so disillusioned with big company life but having fun contributing to open source. Tim left to work at a startup.
- [05:01]
Tim Chen
But once I joined a startup I was like holy. You can actually just code most of your day. That was like never, I never, never experienced that. Only one of the students, right. Working on like your coding assignments. But now you don't have like coding assignments all day long. Right. Um, you actually just need to build stuff and people actually just use it. That that was never ever A feeling I ever felt like, which is so funny to hear that if you only work at large companies, you probably know what I mean. They spend so much longer at meetings and documents and all that stuff, right? You barely even do anything encoding wise. But I was so hooked in this idea that wow, I have more direct impact and actually work on fun stuff. So I was kind of basically telling myself I just want to join startups. Even though the startup I joined first wasn't working out, I guess it wasn't so bad enough. I wasn't like, I'm just going back to large company. I just like, I want to keep learning, keep doing something. So went to a search engine startup first and then went to work on a gaming company as a one of the only backend engineer.
- [06:04]
Adam Gordon Bell
Then Tim joined VMware to work on Cloud Foundry. But after some internal reorgs he found himself with nothing to do. So he just doubled down on his open source work.
- [06:14]
Tim Chen
I was basically spending full time working on Apache stuff. I started with Hadoop stuff and then went to work on Drill, which is one of those SQL on Hadoop projects, a query engine. So I had lots of fun becoming one of the committers that's outside of this company called mapbar that started this project and that really was the starting point for me getting reached out. I'm getting reached out by a bunch of companies out of like the Valley. One of them was databricks. Right early days before it was like only like 8 to 10 people. The Kafka team also reached out as well on LinkedIn and yeah, I actually interviewed both places, decided to go join LinkedIn Kafka team.
- [06:55]
Adam Gordon Bell
So Tim moved to California and his open source work started to draw a lot of attention.
- [07:00]
Tim Chen
And funny enough, probably like the week, first week I started at LinkedIn working on Kafka, I started getting messages from the historical mesosphere.
- [07:08]
Adam Gordon Bell
Tim had just started at LinkedIn but the folks at Mesosphere were giving him the hard sell.
- [07:14]
Tim Chen
So the CEO reached out, told me to join, got Marc Andreessen to call me, Pierre Levine to call me. Like these big name investors trying to poach me out and what does that look like?
- [07:24]
Adam Gordon Bell
Tell me about Mark Andreessen phoning you.
- [07:26]
Tim Chen
Well, it was really cool because prior to moving down to the Valley, even though I worked at two to three startups, I never met any investor. So literally the very first VC I ever talked to is Marc Andreessen in my life, which is really odd. I was like, I feel like I heard this name. I really don't know who this person is. When Flo the CEO was talking about, I'll get Mark to call you. Who is Mark? I literally googled him and I think the first result was a Wikipedia page and I clicked on it. I was like, oh, okay. Netsuite founder. Oh, I started Andreessen Horitz Fund. Oh, that sounds even more familiar. But I just so out of it. I have no idea about the magnitude of these people. But I realized, wow. I think I sent that link and emailing some of my friends back in Seattle. Holy. I'm talking to Mark Andreessen. This guy seems to be a big shot or something like that. All I can remember really was he spoke like five times faster than anybody I ever met in my life. I was barely able to listen to what is he talking like. He has so many words crammed together. You can feel like he's the smartest person you ever met. Kind of feeling right, all kinds of like I was asking him like, why Mesos, why Mesosphere? Why Flow and Toby? Whatever. It's just so funny that he's just giving a bunch of like so much information about the future. That experience is really interesting. This is my welcome to Silicon Valley moment is talking to Marc Andreessen. One of the decision making to join Mesosphere was I feel like that's one of the good opportunities to join something that's it's. There's a wave and paradigm shift around it.
- [09:07]
Adam Gordon Bell
This is the wave of changes that will be eventually called Cloud Native with Kubernetes and the CNCF being created later that year. But at this point in 2014, none of that stuff has happened yet.
- [09:18]
Tim Chen
And it's funny enough at Mesosphere I joined probably like number nine employee but like number third or fourth engineer working on Mesos and all the Mesos engineer were busy working on security stuff. I was, I was a new guy left over doing nothing and it's like hey Tim, you just joined, do some small patches here and there. Just do get to get to co based learning. Oh, by the way, there's this Docker thing that seems to be taking like a lot more attention. We want to add Docker to Mesos. How about you? How about you come and help us do that? I was like, fine. So I work with Ben Hyman, the creator of Mesos and that was really my first big project and just getting Docker to be added to Mesos and lo and behold, once we did and we just mentioned the word docker, I remember we're even announcing on our website Mesos if you're we added Docker support that single post got I think our CMO told us it got like 20 to 30x way more visits than anything extra post they ever got really Docker was like the the thing we're attached to. So being able to be part of that early ecosystem to have c Docker took off. I become the container make guy from Essencephere for a period of time and working with early Docker employees doing work on Swarm, seeing the Kubernetes movements and all that kind of stuff and I have started to have VCs reaching out almost like a bi weekly to monthly basis like hey Tim, I saw your work at Mesosphere can you come to our little dinner? Come to our little baseball game And I think all of that helped me to start to get started on thinking what to do Next.
- [10:58]
Adam Gordon Bell
So some VC like hits you up on LinkedIn and says come to a baseball game or I don't know they.
- [11:05]
Tim Chen
Just found me on LinkedIn or some friends or like even a bunch of just found my email and reach out like oh I saw you are part of the Mesos committer teams. Can you we're doing a piece comparing like yarn and Mesos where can you help us give us some opinions Tim, you're one of the interesting people can come join us dinner and we have you know Brian from Google or just people in that and yeah and then VCs are also hunting down um folks like me is like hey Timmy, one day you want to start a company. We also have a list of co founders for you.
- [11:42]
Adam Gordon Bell
They say that at the dinner or.
- [11:44]
Tim Chen
Like afterwards like dinner was just more like a Mingo and a VC was like hey I want to reach out to you and oh can Tim can you also be advisor for a couple of our startups are doing container related stuff like Meso is going to be quite crucial. Can you. So I remember1 of VC want me to become like advisor and consultant for like a couple of companies and also able to work with early customers with people using Mesos Also got me a lot of thoughts of how people are struggling to use this container thing.
- [12:12]
Adam Gordon Bell
Tim saw those container struggles as an opportunity like a startup opportunity. So he left Mezos he got a co founder and they lined up meetings on Sand Hill road where many VCs are based.
- [12:23]
Tim Chen
This is pre zoom days, pre Covid days. You literally had to pitch in person every single time. Get your sparkling water and just sit there waiting for these these fancy suits people to Be ready. And besides talking to like the big names, we also got introduced to some of these like smaller name VCs I never heard of. So I think that experience kind of like taught me that hey, the VCS that stand out for me personally was the ones more focused on a particular space as well. It wasn't your generic fund because I was building a very specific thing.
- [12:58]
Adam Gordon Bell
That thing that Tim wanted to build was a tool addressing many of the problems he was hearing about from Mesos customers.
- [13:05]
Tim Chen
So people using Mesos. The biggest problem after getting it set up was just like how do I actually even figure out what are the right containers right next to each other? Because containers, the selling point of containers versus VMs is VMs. You can only run a couple, right? Seven to eight of them per physical machine. Just a lot of overhead is slow. But you can literally run hundreds of containers on a machine. Like I remember, like our large companies, customers are literally running like three digits of containers per per machine. Which is crazy because container doesn't have like such a strong isolation. So you can run into a bunch of noisy neighbors pretty quickly. How do you know which. Which thing, which which particular machine actually runs better, right? What container run next to each other actually is better, right? How do you get the visibility and the right settings to have all these trade offs?
- [13:53]
Adam Gordon Bell
To be a founder, Tim needed to get VCs on board. Yes. But he also had to get his wife on board. He had to talk to his wife about his plans and his career trajectory.
- [14:02]
Tim Chen
And it's funny like this interest in me joining startups has never been. My salary has never increased. Right. My salary just went down in time. We supposed to go up, right? As a normal career progressing person, right? He's from college. SD1, SD2 senior engineer. You want to just. You want your salary to go up, you want your title to go up, not flats or not down. Right down has something really bad.
- [14:30]
Adam Gordon Bell
And now he wanted to cut his salary again and to take a small seed stage CEO role. His wife didn't get it, but she wanted him to go after what he cared about. And so he started Hyperpilot. After two years of hard work, Hyperpilot was acquired in 2016. It wasn't a huge acquisition. There'd be no shopping for yachts. But Tim suddenly had some cash on hand.
- [14:53]
Tim Chen
We have acquisition posts we put out there. I just have friends reaching out to me. Oh Tim, congratulations. Getting joining Cloudera. Can we catch up and make sure and I have more time and of course my salaries. Nothing great, but better than Paying my founder CEO job of like small, small salary.
- [15:15]
Adam Gordon Bell
So despite his general career trend, Tim now had more money than he was used to. And even though running his startup was tough, you know, he missed parts of it. He wanted to talk to other founders. He liked that experience. He wanted to stay connected to that world. To him it was clear right if he found the right idea he'd be back at it again starting his own company. And that's how he started talking to David.
- [15:37]
Tim Chen
I met David I think a conference or something like that before so I really knew him and I think I saw him starting a new company just randomly browsing LinkedIn and we're just chatting. Hey, I'm going to start a pre seed round. Tim, you've been a founder. Can you help me out? Knowing what investors to talk to, what does it feel like to fundraise? I'm sure you know let's chat about it like also like hey I've been doing also like I've learned so much trying to sell to enterprises as well. I've gone through a lot of troubles and it was interesting helping the founder. I still remember everybody was having trouble figuring out if this can be a big company or not because Flat File early days was doing a small feature. It's like import your CSV, import JSON into your website. Right.
- [16:23]
Adam Gordon Bell
David listed Tim as a reference and soon other investors were calling because most.
- [16:27]
Tim Chen
Investors are not technical I am so they want to talk to somebody else are technical to help them learn more others perspectives. So he put me up as a reference and I started talking to investors for him like why I think Flat File has a chance to become something much bigger and I think I was doing a good enough job. Some folks do come in at the precede and anyway that that kind of exercises was interesting and I realized the reason it was fun for me to talk to investors because it's not just my engineer hat being a founder especially being like a CEO and I'm. I'm not a good CEO. Like I was shitty at it but you just had to learn enough to know what a product is right. What product marketing is. Why does the customer want to buy from you? Right. There's a whole lot of exercises there and fundraising as well is all by selling your future. Right. So at least I've gone through it once.
- [17:21]
Adam Gordon Bell
So because he enjoyed it and because it felt impactful, Tim started spending a lot of time talking to these pre seed founders. These founders who just have an idea who haven't really started or gotten funding yet.
- [17:32]
Tim Chen
Hey Tim, we love talking to you. You've always been friendly. You know, you just went to our shoes. We just want to work with you. Do you do angel investing? And I was like, I never tried it. How does this thing work? After talking to founders, what I realized, they just want to meet and be involved. They don't even care what amount.
- [17:52]
Adam Gordon Bell
Tim's excited about this, but it's a family decision and so he brings it to his wife.
- [17:56]
Tim Chen
I was fortunate. I think she let me. Of course, we don't have that much money to burn. You know, having an exit definitely helps, right? Because you suddenly have like some sort of infusion of some capital. Right. And even though it's not big, you can choose to kind of like do other things. We don't have kids yet. We're still young. I guess we can still able to like do things. And I treat an initial investment not as like a spare money to like do hobby. Actually to me was almost like a way to still get involved in a startup ecosystem. Because once you're in a big company, even though I've been in founder before, once you're in a big company, your time energy is supposed to be consumed by whatever the big company things are doing. And so I don't get to see what a startup world is like anymore. So it's almost like I know I never want to be here long term and I know I want to either my searching for something else. Right. So this is almost like a way to help me network and be able to be still plug into other things happening. It wasn't like I have a budget, how much I want to spend on angel investing. I just started with one check first, right? Or one or two checks. It was like 5k, 10k. You can kind of try it out and see. It's impossible to know if I did the right choice or not. But one thing I definitely realized quickly after angel investing is helping founders. That is a particular thing that can grow reputation. Founder start to talk to other founders about me and also talk to their investors about me.
- [19:27]
Adam Gordon Bell
Just like with flat File. Other investors want to know why Tim invested in a specific company. They see him as this technical expert. So he's already vetted these ideas, which is great for them because many of them aren't technical or they're just not familiar with this area.
- [19:40]
Tim Chen
I think by seeing me being helpful to their founders and by seeing them, I'm also adding value to their processes. They just want to sync with me. Like I have investors basically say, hey Tim, can we just sync up Every month or every two weeks or something like that. And they prompted it. And I was like, sure. And I was intrigued, right. And every discussion was so interesting, right? You know, like, oh, we're looking at this company that's doing a graph thing, that's doing a machine learning on networking. And what do you think, Tim, like from your engineer background, how hard is it? What is it? You know, I just, I just realized this is so cool. Getting to be plugged into like all these interesting things was so interesting.
- [20:22]
Adam Gordon Bell
Of course there's a big problem with Tim's new sideline and angel investing.
- [20:26]
Tim Chen
The part that sucks is you're never going to, you're never going to see those money back anytime soon. So we're all going to run out of some pool of money at some point in time.
- [20:35]
Adam Gordon Bell
Because investing in a startup at the point where it's not even really a company, right? It's just a founding team. Even in the best case, where it becomes a huge company. And IPOs that might be in year 10 and this is year zero.
- [20:48]
Tim Chen
So I can recycle any money back from that pool of money I put in for a long period. I don't even know when it's ever going to come back or none of it will come back.
- [20:57]
Adam Gordon Bell
So Tim had another idea. He's good at helping founders and he thinks he can spot promising ideas. So why not just get a job at a VC firm?
- [21:04]
Tim Chen
And so I tried that. Probably tried like six months or seven months. Talked to maybe tennis funds. Yeah, nobody wants to hire me. Yeah, it wasn't a thing. I wasn't a hot commodity whatsoever.
- [21:19]
Adam Gordon Bell
What does that look like?
- [21:20]
Tim Chen
One is like these vc. No VC funds has a job opening called investor come apply here. Right? Especially I was like thinking, if I want to join a fund, I want to join a fund I feel like I can learn a lot from. So hopefully it's a name I heard of. So that even makes it even harder. I didn't realize how hard it is to join a VC fund. I know it's like maybe not easy, but I didn't really have any idea how difficult it might be to do it. But just putting the word out there, like, hey, I am interested to join as a vc. Is there any opportunity opening? And some folks, it's like, oh, maybe let me ask some friends and even somebody even refer me to a recruiter because there are actually recruiters finding VC's roles as well. And so they also connected me to some VC that are looking for investors to join. It was all basically Word of mouth to some degree. And these interviews are so weird too. It's like, come on, talk to us, come talk to this partner. Oh, come grab a coffee. Oh, maybe join a little founder pitching too and just invite me to things very ad hocly. There's no steps, there's no plan, there's no what you're looking for. I have no idea what they're looking for. It would just be random text message or email. Hey Tim, do you want to come join us? Grab some this and that and then just don't know what happening afterwards. No, no next steps, no, no nothing. So yeah, that's like the process, it's just like completely abstract. What is happening here?
- [22:56]
Adam Gordon Bell
What like what did you think you would get out of all of this?
- [23:00]
Tim Chen
Well, I think the base level is I don't have enough money myself to back more founders, right? I'm meeting more and more interesting people because people are saying good things about me. It's not like crazy amount but definitely growing.
- [23:13]
Adam Gordon Bell
But why do you care about backing founders? Like you must have got something out.
- [23:17]
Tim Chen
Of it or you mean like money.
- [23:20]
Adam Gordon Bell
Wise or like whatever.
- [23:22]
Tim Chen
Oh, I got a lot of satisfaction. Yeah, I feel great. Like, you know, I think a lot of founders have a hard time being investors because being an investor you don't, you don't, you're not in the driving seat, right? And to be good founders, you almost have to have this urgency. You're willing to like change anything. You have no patience. Almost like, yeah, I got to make sure this thing is fixed as we like drive as much momentum as possible, right? On the flip side in you can't make any decisions for founders, right? Of anything. You want the founders to make all the decisions. So I think I found an interesting way to influence without actually being their boss. So when I was able to help out a founder and I can see what I did makes a meaningful difference in their journey, that made me happy.
- [24:13]
Adam Gordon Bell
Part of this, you know, was all about impact because in his day job as a big company developer, positive feedback was just harder to come by.
- [24:20]
Tim Chen
You know why I enjoyed being a startup in the first place was I was coding. I can see myself compile and it runs right in production. That's fun and cool, right? You want that feedback, right? If I'm just doing something like in a large company I'm building a little feature, it barely even get mentioned. It's no difference whatsoever. Like why, why the hell are you doing this anyways, right? But I guess maybe because I saw that feedback loop and I really Feel so happy that I was able to make someone else more successful. And I was happy with it. And I think that made me like, you know what, if I can keep doing this, this actually might be fun.
- [24:59]
Adam Gordon Bell
Some people, I mean, maybe most people want to be a VC because it feels like a path towards wealth and towards glamour.
- [25:07]
Tim Chen
I didn't really care about any of that and I didn't really thought VC had any much glamour in the first place. It was really more just solving a problem because I have no, I don't have enough capital to keep backing companies. I just want to keep doing this. And the only way to keep doing this to get paid because I do have a family and expenses and mortgages and stuff like that. And it wasn't like I've sold my company for millions and millions of dollars, right? That's really like the only thing I was trying to solve.
- [25:37]
Adam Gordon Bell
But Tim's strength as an investor was actually a weakness when it came to interviewing as a vc.
- [25:42]
Tim Chen
Well, Tim, you look like a coding bro. Like implying I don't look professional like a VC supposed to be or not even dress codes, but even like particular way they want you to talk, they feel it's professional.
- [26:01]
Adam Gordon Bell
Tim wasn't an mba. He didn't have a business background and it showed. He didn't feel like a cultural fit. Sure, he could vet engineering ideas and he could bond with the coding Bros, but to the VC firms, if there was a social event, it would feel like he just didn't click. And then his family grew.
- [26:17]
Tim Chen
We have our first son, my wife and I, we really like think Seattle is much better for us to raise our family. So that's for family reasons we moved back, not for anything professional. And I was, I think I was fortunate. One of my good friend, he was a partner at Angellist and I was just catching with him like hey, I this Jake seller. Hey Jake, I have no idea what, nobody wants to hire me. I'm having fun doing angel investing. I really want to see if I can pursue this. And yeah, he just told me like, Tim, you should go raise a fund. I was like, dude, how do I do that? And he gave me like a pitch deck template first. Like okay, write a deck first you got to figure out what your fund is. Help me fill out some details, like how big of a fund, how many investments you want to make, what is your thesis, Give you some examples. Basically kind of like this 7, 8 pages Google Doc template to start with to fill in on some information. So Jake told me like, okay, Tim, you've never been a vc. I don't think you even know if you like it or not, right? So don't raise too much, right? You're going to probably do this part time. So raise just 1 million. See if you can just raise enough to just get started and see if you can figure out if you like this or not. I was like, fine, that sounds like a good plan. If I could do it.
- [27:37]
Adam Gordon Bell
Yeah. What is the thesis? What do you tell them besides I'm raising a fund?
- [27:41]
Tim Chen
Well, Jake helped me narrow it down. So basically Jake told me, yeah, just do infrastructure dev tools, that's it and just do 1 million. So it wasn't me thinking about my thesis really of narrowing down my area. It's just like Jake told me, this is the thing to do. I just did it.
- [27:57]
Adam Gordon Bell
Eventually, Tim refined this even more. He wanted to invest in people that were like him, technical founders, building infrastructure, building dev tools. And while he didn't have much money to invest, he offered a lot of guidance because he was literally just that person, right? He had just been an infrastructure founder himself. So with this clear focus, he took his idea and he took his slide deck out on the road.
- [28:19]
Tim Chen
So went to Bain, they put 10% in first and of course Jake himself and his friends put another like 10%. Wow. I now I have 20% of my 1 million raised. I guess I could maybe raise a fund, right? It was, it was a weird feeling. I have no idea what I'm doing, but just having that early confidence and momentum to start off with, let me start to just try it.
- [28:50]
Adam Gordon Bell
Jake tells Tim to just start talking to everybody he knows with money. Right? As a fund manager, Tim will be the general partner, he'll be the GP. And now he has to find LPs, the limited partners.
- [29:01]
Tim Chen
So raising LP money was so weird because I don't know who's the right people. So I'm just trying different friends and people. And I quickly realized that trying to convince all these big company engineers that raise backing a fund makes any sense, it's almost like a futile exercise.
- [29:21]
Adam Gordon Bell
A big company engineer, it turns out, has a hard time picturing how Tim writing checks could actually make money.
- [29:28]
Tim Chen
And I don't have any good answers for how long it would take to make your money. I don't know. Yeah, raising money for funds is quite interesting because your LPs are definitely not professionals, not even knowing this thing you're doing. They do have the capital and potential to be part of your journey, right? Yeah. Versus when you raise money as a founder, you raise money VCs, however you think VCs are bad or good, at least VCs know what you're doing. You have to teach them what a founding company means, right? They're already set. You know who they are, they have a website. They're here to put money in you.
- [30:08]
Adam Gordon Bell
Tim realizes he can only raise money from two types of people. Those that believe in him or those that believe in one of his angel investments.
- [30:16]
Tim Chen
Like remember Jake Zeller or these VC funds. I think VC funds backing me was relatively easier because they can see my portfolio companies and they know them, right. They seeing them raising and they have their own judgment calls. Oh wait, these are interesting ones. They're the good ones, right. Even though early that they know it. Right. And. And they may not actually have the opportunity to go deep dive into it because they saw after announcement or whatever that got them interested.
- [30:45]
Adam Gordon Bell
So meanwhile, while Tim's doing all this, he still has to pay the bills. A traditional VC fund, if it's like $200 million, they cover expenses with a 2% yearly management fee. So that would be $4 million for office and staff and networking dinners and so on and so forth.
- [31:00]
Tim Chen
And Jake also suggested like, hey, 1 million fund taking 2%, it's not going to pay much anyways. Yeah, don't bother doing it. So try to just take no fees. And so I took no fees. So I had to put my own money. I had to put 5% of my fund myself and pay myself nothing. And spending a lot of time doing this. So this is like, okay, I got to figure out how to get myself paid. I have no health insurance, I got.
- [31:28]
Adam Gordon Bell
Nothing to keep the lights on and stay flexible. Tim starts consulting and doing open source.
- [31:34]
Tim Chen
The good news is like my resume is already on GitHub. So most of the time I don't even have to like come up with a way. It's like, hey, look up. I'm a committer for this. I work on Spark, work on Kafka, I work on Docker Kubernetes. All my patches are there, my talks are there. Let me go find some contracting jobs, work on a side. So that's kind of what I did. I started finding some contracting jobs here and there. One of them turned into like really wanted to join me to join full time. So I joined full time actually. Yeah, the CEO actually even asked me want to be their director, engineer or something like that. Because I previously I was VP engineer at a startup, right? I was, hey, Tim, you want to help a man we have nobody actually would have Experience leading teams. Do you want to help us like lead a team? And I told him, like, hey, I just give me an engineer job. I don't want to manage anybody. Being a vc, like logistically, one of the hardest things beyond like the fundraising times is very difficult. But even after you're able to fundraise, the hardest part is really able to like sustain yourself. Like putting money in yourself and not getting much out of it. How do you actually have a job you can able to kind of get by while spending so much time on your fund? It's quite difficult. Yeah. So I literally had to figure out how to like maximize my time as much as possible on both sides, do my job in the most minimum amount of time possible, try to do as much as I can as a fun. So depending on the afternoon, it will probably be either a Sprint planning meeting or a zoom call or me trying to work on some feature with the zoom call next to it. It'll be VS Code to right, Zoom Call to left. And I don't know, it was just like I have to spend my lunch meeting, my night time after my kids are sleeping and some early mornings spending time working on code and then the rest of all the sprinkle time to do zoom calls.
- [33:34]
Adam Gordon Bell
Tim loves the zoom calls with founders. That's what keeps them going, right? Finding ways to help them out. But now he's swamped with pitches and code to commit and PRs to review.
- [33:43]
Tim Chen
And I originally when I was just starting off, I had one hour zoom calls, right? And I realized I just can't get over talking to enough people. So I went into half an hour Zoom calls. I went there with 15 minutes phone calls. This is way too little. I can't really get anything done. But it just like, yeah, yeah. The day is pretty much filled with VS Code and Zoom call on some overlapping frequency.
- [34:09]
Adam Gordon Bell
But Tim managed to keep that up. He managed to deploy the million dollars and still keep his job and still pay the mortgage.
- [34:16]
Tim Chen
I was able to invest in some interesting companies. Fund Fund 1. You know, looking at some of my. Actually I have my Fund 1 portfolio in front of me. I backed like warp.dev the Developer Terminal company I was working on. Ready Set. I backed Data Flow, Sardine and Metaphor and Coils. So these companies are like considered hot back in the day basically. And seeing my name show up in TechCrunch on a repeated basis was really interesting just because I have. So I'm writing small checks, right? So. And somehow I was able to get into good companies over and over.
- [34:53]
Adam Gordon Bell
Pim feels like it's working because he has all this insider knowledge and immediate feedback. A founder needs help and he helps him or her and that helps the company. He sees the impact and there's a long term vision which is pretty clear, right? He waived his 2% management fee, but if the fund makes a profit, he gets a 20% carry. That means once investors get their money back, he gets 20% of the profit. If $1 million turns into $2 million, he might get $200,000 in profit. But that's not going to happen for many, many years, not until all of these various investments are realized. And to outsiders, this can seem a bit made up, right? You take a million dollars, you turn it into checks at various super small, super new places and then you hope on the other side, 10 years later, it's actually turned into more money. Tim's wife was super supportive, but she was skeptical.
- [35:44]
Tim Chen
She's not an engineer and she never worked in an engineer company, right. So she doesn't follow any of these startup things at all. Right. She's not looking at TechCrunch. All she sees is like Microsoft or OpenAI and some fun stuff like this. When I'm, I'm excited like oh, whenever our company's race, series B, you know, and got into the news this way and say oh, that's great. How much did we make? Nothing still on paper. I was like, oh, don't talk to me. When we make at least something real cash, right? She's way more DPI seeking than any of my LPs if you know what DPI means.
- [36:24]
Adam Gordon Bell
No, what is it?
- [36:25]
Tim Chen
So in VCs we're judged in the end by DPI, by real cash return to LPs because a lot of times when you have a new round, it's just on paper valuation worth 400 million. They raised 25 million out of this. So on paper it looks like a higher price of a per stock you own. But they haven't exit anywhere, they haven't sold it. You can't sell it easily, right? So it's all on paper. It's like play Monopoly money. Virtual currency almost right. To my wife this feels like virtual currency. Like I'm playing a video game with fake money building like little buildings and some games like oh, look at that Monopoly building just went up to TedX. You know, look at, I don't know, Jasper or Mother duck went into TedX. Like to her it's just like a fake thing being a vc. Unfortunately being early means you don't really get much capital back at all. The only capital is your management fees, but you also spend so much money to put in your fund. To her, it's like, it's just crazy. Like you're spending so much time spending all these things doing meetups, dinners, all this stuff, and you're just getting like these fake money on paper. When are you actually going to actually get real money back? Like, hey, our friends next door working at Snowflake, the ipo, they got bought three houses. So anyway, she's, despite of all this, completely not understanding what the hell is going on here, she still supports me, which is like, I think it's actually difficult, right? You know, supporting your partner doing something you completely don't understand. But it actually has meaningful impact on your family because it's your financial backbone, right? Takes a lot of like faith, I guess.
- [38:27]
Adam Gordon Bell
And yeah, Also it'll be 10 years before the results are in. But you can't do something like this part way.
- [38:33]
Tim Chen
There's never best time to do anything. I realize in life and everything worth doing takes not just a lot of effort and money, but also a lot, a big amount of time. Do you have that much time? You have kids now and why you want to like make this happen, right? Family has issues like, so this got to work. Like it doesn't, you don't know if it's going to work, right. But you have to spend so much time and energy and, and, and, and, and things to potentially see it working. Or you can't just put half asset in there. Like you actually do have so much time. So you have really, really like it. But you also have to have optimistic and also bring optimism around you. It's usually a lot of people don't choose to do this not because it's not doable, it's rather like the uncertainty of it because you actually do need to put so much in and you might have nothing back.
- [39:31]
Adam Gordon Bell
But yeah, for Tim, it's unknown if things will work out. But along the way he's getting little hits of feedback, little dopamine hits, because he's helping founders out. He's helping these founding teams with small tactical things. Maybe they won't make it long term and become the biggest thing, but medium term, he's making a difference. And after fund one, even with uncertain returns, Tim raised a second fund, $7 million, seven times larger. Much of this came from VC funds who were recognizing that a lot of his early bets were turning into valuable companies. Tim is gaining momentum.
- [40:05]
Tim Chen
And because of that, I'm doing poorer and Poor on my job. So I know the time is coming. Like a doom day of cup time is coming anyways, right as in so. But I was trying to like prolong the insurance and the pay salary as much as possible. I was like okay, I see this is not gonna happen so I have to leave. I wasn't forced out, but it's kind of getting there. After I raised maybe about six months or so, I quit and just pretty much dedicate most of my time to do this.
- [40:37]
Adam Gordon Bell
And then did you have enough? Could you take a salary at that point? Was the fund big enough?
- [40:42]
Tim Chen
Yeah, I was finally able to take some salary, but it wasn't a lot. 7 million fund. I take small percentage of it to be my salary. But yeah, so I was trying to find a part time job actually. So Bessemer was my investor before for my startup. I was talking to like the GP there. I was like oh I'm figuring out what to do, I have to pay my insurance now, it's not cheap at all and stuff like that. So hey, well maybe I figure out something. And they luckily did figure out a small role for me as a part time job. So I was there about like six to eight months. I basic contractor but they pay me some salary doing stuff for them. It gave me a little taste of what does it feel like to work at a VC fund.
- [41:24]
Adam Gordon Bell
Actually you finally got your in at the VC company?
- [41:27]
Tim Chen
Yeah, yeah. It was funny that there, there are times I need to reach out to other people as hey, I'm a investor out of Bessemer, right. We back Twilio and Pinterest and I was in a partner meetings, I was in team meetings. I was able to like see a little bit like say like more than half of what it feels like to be part of a larger fund.
- [41:52]
Adam Gordon Bell
Now Tim's onto fund three and he's earning enough to support himself without needing side gigs I would say.
- [41:58]
Tim Chen
Now after six years in, I kind of went back and forth on how much faith and belief into what companies were back. Now I trust my instincts way a bit more than I even started with, funny enough. And we have our first biggest exit. Happened probably like a month or two ago, you know a company called Tabular, you know, so databricks and it's not like made me rich or anything but finally at least made us return some money. That seems like more than just a tiny bit, right?
- [42:31]
Adam Gordon Bell
So now at six years in doing it full time, Tim no longer has to code during pitch meetings. But like any experienced developer who's seen Many things go sideways. Tim is still a bit uncertain about some things.
- [42:44]
Tim Chen
So on one side of the hand, like I actually do know I'm going to keep doing this because when I already enjoy doing this for the most part. Right. And am I really good doing this? I hope so. I think so. It's just I have to really keep figuring out more things and keep learning as much as I can to make sure I am at the best position to return better things. So I don't know, it's just weird. This is a job. Like I still remember the days I can compile my code and push a production and see, see, see my high crazy logs flying left and right when, when I was working with Halo, Halo 5 back in the day, right? Like game launches and everything is just crashing and burning and it's like, oh Jesus Christ. Like, okay, this is clearly some of the code is not working here. I got to go fix it. And then you kind of get to know if you're doing something good or bad to some degree as a developer, but as a vc, your stock, you pick can go anywhere. Things that seem to work may actually just crash and burn one day. Seem that doesn't seem to be the most high flying thing suddenly just blows up to be the biggest thing. So in the end it's much more about believing the team has what it takes or has relatively higher chance than anything else we've seen to succeed. And you have to have that belief. Like it's not obvious, but we believe that and we just had to be right a few times. Every fun. That's kind of it.
- [44:08]
Adam Gordon Bell
Like, I mean you came into this because you had your unique experience with like, with like ops tools and dev tools and stuff. How do you make decisions? I assumed it was based on like the depth of your skill.
- [44:21]
Tim Chen
The real answer for sure is still based on belief unfortunately because I learned that no matter how much work you do and how much groundwork and how much data you look at at the stage we're backing, you can't really have enough data to convince you just purely on paper. You have to believe and create this sort of ecosystem of belief to continue to make sure this can continue to be working. And it's a self fulfilling prophecy. It's one of the most interesting job I ever see is being a venture and capitalist.
- [45:14]
Adam Gordon Bell
That was the show. Thank you Tim for sharing your story. Tim, besides his VC firm, has a podcast about trends in computing infrastructure called yet another infra deep dive. You should check it out. But yeah, I still think it's wild that Tim spent years with his VS code in one monitor and a zoom call in the other cranking out work between company pitches. At the same time it sounds wild when I think of a VC and I think what their days would look like. I never thought that between pitch meetings they have to jump into a sprint planning meeting, they have to do PR reviews amongst coming up with funding, doing whatever the legal paperwork is to make these deals work. It's really wild. And yeah, if you like this podcast, subscribe to my newsletter where I cover similar topics, follow me on Twitter, et cetera. And for true fans the best thing you can do is go to coercursive.com supporters, link in the show notes and that's like a Patreon page. You can join as a podcast supporter, receive access to bonus episodes and really just support me and join the community. And until next time, thank you so much for listening.